By Chen Lin and Isabel Kua
SINGAPORE, December 28 (Reuters) – Singaporean Soif Noor has already bought furniture and appliances for his new home, four months before he can move in. Like many residents, he celebrated – because on January 1, Singapore’s sales tax increases for the first time in 15 years.
Starting next year, the sales tax on everything from groceries to diamond rings will increase from 7% to 8%. Barring a sharp global economic downturn next year, it will then rise to 9% in 2024, as the city-state of 5.6 million people boosts revenue to support its aging population.
Overall, economists believe the impact of the one-percentage-point hike could be muted, with a surge in consumer spending before the hike likely to be offset by a decline afterward. But for residents like Soif, it’s an important trigger.
“A 1% increase may be small, but any saving is useful in this inflationary environment,” the 28-year-old engineer told Reuters. By buying everything now before the hike, Soif said he saves 250 Singapore dollars ($185) on his purchases, currently stocked at retailers.
Soif said some of her male colleagues were rushing to get engagement rings, being urged by girlfriends to “propose now – otherwise it will be more expensive next year”.
At 8%, Singapore’s new sales tax will be slightly higher than Thailand’s 7% but lower than Indonesia’s 11%, less than half the rate of around 20% imposed in many countries in Europe and lower than 10% in Japan.
Singapore’s decision to go ahead with the tax hike comes even as some countries, like Thailand and Italyapprove consumer tax breaks to help citizens deal with the cost of living crisis.
OCBC economist Selena Ling said the current “positive bump” in large consumer purchases was good for the retail sector, but the impact on the overall economy should be muted. The sale or rental of residential property is exempt from the tax, while the impact on car sales remains uncertain, with prices at records This year.
Ling expects economic growth in the first quarter of next year to be sluggish with “less consumer appetite for near-term overspending until uncertainties dissipate.”
‘BEAT THE TAX HIKE!’
From department stores to furniture stores, savvy retailers are tapping into residents’ “smart shopping” mode, with promotions urging shoppers to “Beat the Goods and Services Tax Rise!”
At the LeCaine Gems jewelry store in an upscale mall near the Marina Bay area, co-founder Michael LeCaine said he’s getting uncommitted customers to buy by raising the tax hike so they “take a decision on the spot”.
Government statistics show retail is doing well.
Sales rose 11.2% in September from the same month a year earlier, then 10.4% year-on-year in October. Outstanding credit card balances in Singapore rose 16% year-on-year in the third quarter of 2021, according to the central bank.
LeCaine Gems reported a 15% increase in sales last month compared to the same month in 2021, while jewelry chain SK Jewelery Group reported a 25% year-over-year increase for the period from September to November.
Spending optimism comes against a backdrop of public concern and opposition to higher taxes.
But supporters of the move say Singapore has no choice but to increase state revenue to cope with the expected increase in its aging population. The government estimates that a quarter of the population will be 65 and over by 2030.
To soften the blow, the government has pledged to pay nearly 3 million Singaporeans at least S$700 in cash installments over five years as part of an S$8 billion “insurance package”. . He also said he would reconsider the second stage of the tax hike in the event of a major global slowdown next year.
In the meantime, engineer Soif’s frenzy will leave him ready to move into his new place with his wife – and with peace of mind.
“We just want to do it and stop thinking about it,” he said.
($1 = 1.3480 Singapore dollars)
(Reporting by Chen Lin and Isabel Kua in Singapore; Writing by Xinghui Kok; Editing by Kenneth Maxwell)
((Lin.Chen@tr.com; Twitter @chenlin_sg;))
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